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PETITIONER: STATE OF PUNJAB & ORS.

       Vs.

RESPONDENT: M/S.  TARA CHAND LAJPAT RAI

DATE OF JUDGMENT: 28/02/1967

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. MITTER, G.K.

CITATION:  1967 AIR 1408            1967 SCR  (3)  10  CITATOR INFO :  R          1970 SC 311  (3)  R          1977 SC 540  (12)

ACT: Punjab General Sales Tax Act (46 of 1948), s. 11(2) and (4)- Return   by  assessee-Notice  under  s.  11(2)  within   the prescribed period--Compliance with notice by  assessee-Order by  Assessing Authority on the basis of best  judgment-Order passed after prescribed period-Order, if falls tinder s.  11 (4)--Order, if barred by limitation.

HEADNOTE: The  respondent firm, was a registered dealer and  furnished quarterly  returns of its turnover as required by the  Rules under the Punjab General Sales Tax Act, 1948.  The Assessing Authority  was not satisfied with the returns and  issued  a notice, under s. 11(2) of the Act asking the firm to produce evidence  to establish that the returns were full and  corn- plete.  The notice was served on the firm before the  expiry of three years from the respective dates for furnishing  the returns.  A partner of the firm complied with the notice  by appearing and producing its account books.  The officer held an  enquiry,  and  passed  an  order  stating  that  he  was assessing  the firm to the best of his judgment.  The  order was  passed after the expiry of three years from  the  dates when  the  quarterly  returns had to  be  filed.   The  firm challenged  its  validity by a writ petition, and  the  High Court  hold that the order fell -Linder s. 11(4) of the  Act and that it was barred by limitation. In appeal to this Court, HELD  : The impugned order could not be said to be under  s. 11(4)  ,even  though it was stated that the  assessment  was made  to  the best of the officer’s jud-ment,  because,  the condition   precedent  under  that  subsection  is  that   a registered  dealer who has furnished returns should fail  to comply  with the terms of the notice issued under s.  11(2). But assuming it was made under s. 11(4), the order could not be  attacked on the ground of its being  beyond  limitation. Under  s. 11(4), if a re. gistered dealer  having  furnished returns  in  respect of a period, fails to comply  with  the terms  of a notice under s. 11(2), the  Assessing  Authority shall,  within three years after the expiry of such  period,

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proceed  to assess, to the best of his judgment, the  amount of  tax due from the dealer.  "Such period"., refers to  the period mentioned earlier in the sub-section, that is, in the present  case, to the quarters in respect of which the  firm had to submit returns.  The assessment proceedings commence, in the case of a registered dealer, either when be furnishes a  return or when a notice is issued to him under s.  11(2), and would be pending from the time they ,ire initiated until they  are  terminated  by  a  final  order  of   assessment. Therefore,  if  such  proceedings  were  taken  within   the prescribed time, though the assessment was made final subse- quently,  even after the expiry of the prescribed  time,  no question of limitation would arise. [14 H; 15 A, F, G; 17 G; 18 E-F] Madan  Lal Arora v. Excise and Taxation  Officer,  Amritsar, [1962] 1 S.C.R., 823 and Ghanshyam Das v. Regional Assistant Commissioner  of  Sales Tax, Nagpur, [1964]  4  S.C.R.  436, followed.                              A 11

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1080  of 1965. Dipak   Dutta  Chaudhuri  and  R.  N.  Sachthey,   for   the appellants. C. D. Garg, for the respondent. The Judgment of the Court was delivered by Shelat, J. This appeal by certificate granted by the  Punjab High Court raises the following question :-               "Where   the  sales  tax  authority   is   not               satisfied   with  the  returns  filed   by   a               registered dealer and issues a notice under s.               11  (2) of the Punjab General Sales  Tax  Act,               1948 before the expiry of three years from the               termination  of  the  period  for   furnishing               returns  but  finalises the  assessment  order               after  three  years from the  aforesaid  date,               whether  such an assessment order can be  said               to  be  time barred  and,  therefore,  without               jurisdiction". A  few facts for understanding this question may  first  be. stated.   The  respondent is a partnership  firm  registered under  the  Act  and was at the material  time  carrying  on business  in  vegetable ghee, sugar and  other  commodities. The assessment year in question commenced from April 1, 1955 and.  ended  on March 31, 1956.  The dealer  furnished  four quarterly returns as required by the Rules framed under  the Act. viz,., for the period April to June, 1954 on October 1, 1954; July to September, 1954 on December 16, 1954;  October to  December,  1954  on March 12, 1955 and  for  January  to March, 1955 on June 16, 1956.  Though these returns were not filed within 30 days after expiry of each of the quarters as required  by  the  Rules,  no objection  was  taken  by  the Assessing  Authority.  The firm deposited three sums at  the time  of filing the returns aggregating to  Rs.  10,649-4-0. Subsequently,  it  paid a further sum of Rs. 14,477  on  the basis of those returns. Not  satisfied with these returns, the  Assessing  Authority issued a notice under S. 1 1 (2) in form S.T. XIV which is a comprehensive  form and which admittedly was served  on  the dealer on January 11, 1957, i.e.. before three years expired from  each  of the respective dates for filing of  the  said

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returns.   This  is clear from the fact that  the  date  for filing the first return would be July 30, 1954 and the  date for filing the last return would be April 30, 1955.  On July 5,  1960,  the Assessing Authority examined  Tara  Chand,  a partner in the firm but did not finalise the 12 assessment  order on that day as he wanted to  make  further enquiries  and passed the assessment order impugned in  this appeal   on  August  11,  1960.   The  Assessing   Authority disbelieved  the accounts produced by Tara Chand  and  added sales  of  Rs. 4,00,000 in the gross turnover shown  in  the returns  and  assessed  the  firm on  the  turnover  of  Rs. 16,92,148-1-0  to  a tax of Rs.  33,127-1-6.   After  giving credit  of  the said two sums deposited by  the  dealer  the balance of Rs. 8,000 and odd remained payable by the firm. The firm filed a writ petition in the High Court challenging the  validity of the assessment order on the ground that  as it  was made after three years from the dates when the  said returns  had to be furnished, it was  without  jurisdiction. The  department on the other hand urged (1) that  the  order was  made under S. 11 (3) which provided no  limitation  and (2)  that assuming that the order was passed under S.  11(4) or S. 11(5) proceedings in respect thereof having  commenced on  the issuance of the said notice dated January  11,  1957 which  was within time, no question of the order being  time barred would arise.  These were the only contentions  raised before  the  High Court and as no contention  regarding  the merits of the order was raised, the High Court did not enter into that question.  We need not also go into the merits  of the  assessment  and  we will  consider  only  the  question whether  the  order was invalid on the ground taken  by  the dealer  in  the High Court.  The High  Court  following  its earlier  decision in Mis.  Rameshwar Lai Sarup Chand v.  The Excise  and Taxation Officer(1), held that the order was  an assessment on best judgment basis under S. 11 (4) and as  it was made after three years after the close of the assessment year it was without jurisdiction. For  the  reasons  which we shall  presently  set  out,  the question  whether the assessment order was passed  under  s. 11(3)  or  s. 11 (4) or (5) does not need any answer  as  it makes no difference so far as this case is concerned whether it  was made under one or the other  sub-section.   However, the mere fact that the Assessing Authority mentioned that he made  the  order  on the best  judgement.  basis  cannot  be conclusive,  for, by merely calling it as the best  judgment assessment, the order does not become one. Section 10 of the Act provides that the tax payable shall be paid  in  the  manner  thereinafter  provided  and  at  such intervals  as  may  be prescribed.  Rule 20  of  the  Punjab General Sales Tax Rules, 1949 provides that every registered dealer, other than those referred to in rules 17, 18 and  19 (with  whom  we are not presently concerned)  shall  furnish returns  quarterly  within 30 days from the expiry  of  each quarter.   Rule  25  provides that  all  returns  which  are required to be furnished under these rules, (1) [1963] P.L.R. 768. 13 shall  be signed by the registered dealer or his  agent  and shall  be  sent  to  the  appropriate  Assessing   Authority together  with the Treasury or the Bank receipt as proof  of the payment of the tax due.  Rule 40 provides that a  dealer and  his partner or partners shall be jointly and  severally responsible  for payment of the tax, and that  every  dealer liable to pay the tax shall pay it quarterly unless directed otherwise by the appropriate Assessing Authority.   Sub-rule

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(3) provides that the tax due for any quarter shall be  paid before  furnishing  the return for that  quarter.   Rule  32 provides  that every assessment order shall be  recorded  in writing  and, where the Assessing Authority  determines  the turnover  of a dealer at a figure different from that  shown in the return submitted under the provisions of these rules, the  order shall state briefly the reasons therefore.   Rule 33  provides  that  when  it  appears  to  the   appropriate Assessing  Authority to be necessary to make  an  assessment under s. 1 1 in respect of a dealer, he shall serve a notice in form S.T. XIV on him calling upon him to produce books of accounts  and other documents and stating the period or  the return  period or periods in respect of which assessment  is proposed.   He  shall fix a date ordinarily  not  less  than after  10 days from the date of the notice  for  considering any  objection which  the dealer may prefer.  Section  11(1) provides  that  if  the  Assessing  Authority  is  satisfied without  requiring the presence of the registered dealer  or the  production  by  him of any evidence  that  the  returns furnished in respect of any period are correct and complete, he shall assess the amount of tax due from the dealer on the basis of such returns.  Sub-section (2) provides that if the Assessing  Authority is not satisfied without requiring  the presence of the registered dealer who furnished the  returns or  production  of evidence that the  returns  furnished  in respect  of  any period are correct or  complete,  he  shall serve  on  such  dealer a notice in  the  prescribed  manner requiring  him at a date and at place  specified  thereunder either  to attend in person or to produce or to cause to  be produced  any  evidence  on which such dealer  may  rely  in support  of such returns.  Sub-section (3) provides that  on the day specified in the notice or as soon afterwards as may be,  the  Assessing  Authority  shall,  after  hearing  such evidence as the Assessing Authority may require on specified points  assess the amount of tax due from the dealer.   Sub- section  (4)  provides that if a  registered  dealer  having furnished  returns in respect of a period, fails  to  comply with the terms of a notice issued under sub-section (2), the Assessing  Authority  shall  within three  years  after  the expiry of such period, proceed to assess to the best of  his judgment  the amount of the tax due from the  dealer.   Sub- section  (5) provides that if a registered dealer  does  not furnish  returns in respect of any period by the  prescribed date, the Assessing Authority shall within three years after the  expiry  of  such  period, after  giving  the  dealer  a reasonable opportunity of being heard, 14 proceed  to  assess to the best of his judgement  amount  of tax,  if  any, due from the dealer.  Sub-section  (6)  deals with  a  case  where  a  dealer  has  failed  to  apply  for registration,  in  which  case the  Assessing  Authority  is empowered  within  the prescribed period to  assess  such  a dealer  to the best of his judgment.  Since the firm in  the instant  case  was duly registered, the question  of  appli- cation of sub-section (6) does not arise.               Section 11 envisages the following cases               (a)   Where the dealer duly files returns  and               the  Authority is satisfied with such  returns               and accepts them and formally passes an  order               of assessment which means no more than that he               appropriates  the  amount  deposited  by   the               dealer towards the tax.               (b)   Where  the  Authority is  not  Satisfied               with the returns, and issues a notice  calling               upon the dealer to appear and produce evidence

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             in support of the returns, the Authority holds               an enquiry under subsection (3) and then makes               an order of assessment.               (c)   Where   the  registered  dealer   having               furnished  returns  fails to comply  with  the               terms  of the notice issued under  sub-section               (2)  the  Assessing  Authority  is   empowered               within  three  years after the expiry  of  the               period  in  respect of which the  returns  are               filed to proceed to assess to the best of  his               judgment the tax due from the dealer.               (d)   Where  the registered dealer has  failed               to furnish returns in respect of any period by               the  prescribed date, the Assessing  Authority               is  empowered  to assess to the  best  of  his               judgment  within three years after the  expiry               of the period in respect of which the  returns               have not been filed, and               (e)   Where the dealer has failed to apply for               registration  in  respect of  the  period  for               which  he is liable to pay tax, the  Assessing               Authority  is  empowered  within  three  years                             after  the expiry of such period to as sess  him               to the best of his judgment. Sub-sections  (4),  (5)  and (6)  lay  down  the  conditions precedent  which must be satisfied before the power to  make an assessment to the best of his judgment can be  exercised. Under  sub-section  (4)  the condition is  that  though  the registered  dealer has furnished returns he fails to  comply with  the terms of the notice issued under sub-section  (2). Under  sub-section (5) the condition is that the  registered dealer  has failed ’to furnish returns and under  subsection (6) the condition is that the dealer has failed to apply 15 for  registration.   Prima facie, none of  these  conditions existed  in  the  present  case  and  therefore  though  the Assessing Authority states that he had to assess the firm to the best of his judgment, the impugned order cannot be  said to  be  either under sub-section (4) or sub-section  (5)  or sub-section  (6).   But  as  we  have  stated  earlier  this question need not be -One into in the present case and we do not,  therefore,  have to decide whether the order  was  one under subsection (3) or sub-sectioa (4) or sub-section (5). The question that falls for determination is whether it  was one  under  sub-section (3) or sub-section (4),  is  it  one which can be said to be time barred?  So far as  sub-section (4) is concerned the question as to when an assessment order thereunder  becomes  bar-red  arose in Madan  Lal  Arora  v. Excise and Taxation Officer, Amritsar(1).  The petitioner, a registered  dealer, filed his returns for the four  quarters of  the  financial  year  ending  on  March  31,  1955,  and likewise, for the four quarters of the financial year ending on  March 31, 1956.  In respect of each year the  Sales  Tax Assessing  Authority served three successive notices on  him on  March  7,  1958,  April 4, 1958  and  August  18,  1959, requiring  him  to  attend  with  the  documents  and  other evidence  in support of his returns.  It was, however,  only in  the  last  of the said notices that he  stated  that  on failure   to  produce  the  documents  and  other   evidence mentioned  therein,  the  case would  be  decided  on  "best judgment  assessment basis".  The petitioner did not  comply with any of the notices, but on receiving the last notice he filed a writ petition in this Court challenging the right of the Authority to make the best judgment assessment.  Sarkar,

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J.  (as  he then was) who spoke for the  Court,  posing  the question as how to compute the three years mentioned in sub- section  (4) observed : ’The sub-section says "within  three years  after the expiry of such period" So the  three  years have to be counted from the expiry of the period  mentioned. What then is that period ?  The period referred,  therefore, is the period mentioned earlier in the subsection, and  that is the period in respect of which returns had been furnished by  the dealer’.  After considering s. 11(1) and Rule 20  of the  Rules,  he  further observed :  ’It  would,  therefore, appear that when sub-section (4) of s. 11 talks of  "returns in  respect  of a period" that refers in the  case  of  the, petitioner to the quarters in respect of which he  submitted the  returns.   We then come to this that  the  three  years within  which the authority could proceed to make  the  best judgment  assessment had to be counted from the end of  each quarter  in respect of which returns had been  filed’.   The Court held that the last of the quarters in respect of which the  petitioner filed his returns having ended on March  31, 1956 the Assessing Authority could not proceed (1)  (1962] 1 S.C.R. 823. 16 to  make  the best judgment assessment in  respect  of  that quarter  after March 31, 1959.  In the case of  the  earlier quarters  the  three years had expired even  prior  to  that date.   There was no dispute that the Assessing Officer  had not  proceeded to make any assessment on the  petitioner  at the date of any of the notices.  The notices given on August 18,  1959  that best judgment assessment would  be  made  in respect  of  the quarters constituting the  financial  years 1955  and 1956 the last of which expired on March 31,  1956, were  futile as no such assessment could be made in  respect of  any of the quarters after March 31, 1959.  The  question as  to  the  effect  of the  two  earlier  notices  was  not canvassed.  What this decision laid down was that the notice dated August 18, 1959 under which the authority proposed  to proceed  under s. II (4) having been served after expiry  of three years from the respective dates when the said  returns had to be furnished, the notice was futile and the authority not having proceeded to assess within time any action  taken by him would be without jurisdiction. The  question  as to the legal effect of such a  notice  was considered   in   Ghanshyam  Das   v.   Regional   Assistant Commissioner of Sales Tax, Nagpur(1).  The points which fell for determination there were : (1) when can a proceeding  be said  to  commence  and (2) if a  proceeding  has  commenced within the prescribed period but is pending when such period expires  and an order is finalised thereafter, whether  such an order is invalid on the ground of its being  time-barred. Tile appellant there was a registered dealer.  For the  year 1949-50  he  submitted only one return for one  quarter  and defaulted  in respect of the other quarters.  A  notice  was served on him on August 13, 1954 under s. 11 (1) and (2)  of the  C.P.  and Berar Sales Tax Act, 1947 in respect  of  the turnover  of  the  firm for the said  period  He  filed  the returns  subsequently  but contended  that  the  proceedings before  the Sales Tax Commissioner were barred by time.   He then filed a writ petition in the High Court challenging the said  proceedings.   For the year 1950-51, he had  filed  no returns  at all and was served with a notice on October  15, 1954  under  s. 11 (4) of the Act.  That notice  was  within three  years  from October 16, 1951 which  fell  within  the fourth  quarter  of  the year in question.   He  also  filed another  writ  petition for a similar relief in  respect  of that year.  The contention was that whatever may be said  in

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the  case  of  an  unregistered dealer, in  the  case  of  a registered dealer, the proceedings commence from the date of the registration certificate within which he has a statutory obligation  to  furnish his returns.  This Court  held  that assessment  proceedings  under the Act must be  held  to  be pending  from  the time they are initiated  until  they  are terminated by a final order of assess- (1)  [1964] 4 S.C.R.436. 17 ment.   It was then stated that in the case of a  registered dealer  there  would  be four variations in  the  matter  of assessment of his turnover : (1) he submits a return by  the date  prescribed and pays the tax due in terms of  the  said return,  the  Commissioner accepts the  correctness  of  the return and appropriates the amount paid towards the tax  due for  the period covered by the return; (2) the  Commissioner is  not  satisfied with the correctness of  the  return,  he issues  a  notice  to  him under s. 11  (2),  but  does  not finalise the assessment; (3) the registered dealer does  not submit  a return, the Commissioner issues a notice under  s. 10(3)  and  s.  II (4) of the Act, and  (4)  the  registered dealer  does  not submit any return for any period  and  the Commissioner issues a notice to him beyond three years.  The Court  held  that  in the case of a  registered  dealer  the proceedings  before the Commissioner start factually when  a return  is  made or when a notice is issued  to  him  either under  s.  10(3) or under s. 11(2) of the  Act.   Since  the proceedings  commenced  after the return was  submitted  and continued  till  a  final order of assessment  was  made  in regard  to the return, the Tribunal had no  jurisdiction  to issue a notice under s. 1 1 -A with respect to the  quarters other than that covered by the return made by the appellant. As regards the second case it held that the Commissioner had jurisdiction to assess the turnover in respect of the entire fourth  quarter.  At page 450, the Court observed that in  a case where a return has been made, but the Commissioner  has not  accepted  it and has issued a notice for  enquiry,  the assessment  proceedings  would  be pending  till  the  final assessment is made.  Even in a case where no return has been made, but the Commissioner initiates proceedings by  issuing the  notice  either under s. 10(3) or under  s.  11(4),  the proceedings  would be pending till the final  assessment  is made.    But  where  no  return  has  been  made   and   the Commissioner  has  not issued any notice under the  Act,  it cannot  be held that any proceedings are pending before  the Commissioner.   In  the  case of  a  registered  dealer  the proceedings  before the Commissioner start factually when  a return  is  made or a notice is issued and  no  question  of limitation  would  arise where such  proceedings  are  taken before  the  expiry  of  the  prescribed  period  though  an assessment  order  is  finalised after the  expiry  of  such period.  This decision is, therefore, a clear authority  for the proposition that assessment proceedings commence in  the case  of  a registered dealer either taken  he  furnishes  a return  or when a notice is issued to him under s.11 (2)  of the  present  Act,  and that if such  proceeding  are  taken within   the  prescribed  time  though  the  assessment   is finalised   subsequently  even  after  the  expiry  of   the prescribed period, no question of limitation would arise. In  the instant case the dealer filed returns.  Though  they were led after the expiry of 30 days from the relevant date, they were 18 not rejected by the department on that ground.  In fact  the notice dated January 11, 1957 issued under s. 11 (2) was  on

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the  footing  that  returns were filed,  but  the  Assessing Authority  was not satisfied with them and desired  evidence to establish that the returns were full and complete.  It is also an admitted fact that the dealer appeared and  produced books of accounts in answer to the said notice and thereupon the  Officer held an enquiry.  The notice dated January  11, 1957  was within time though the assessment order  was  made much  after  the expiry of three years from  the  respective dates  when  the  returns  had to  be  filed.   But  on  the authority   of  Ghanshyam  Das’s  case(1),  the   assessment proceedings commenced either when the respondent firm  filed the  returns  or  in any event from the  date  of  the  said notice.  Both the events, therefore, were within  prescribed time. Reliance,  however, was placed on two decisions of the  High Court  of Punjab: M/s.  Rameshwar Lal Sarup Chand v.  Excise and  Taxation Officer(2) and Jagat Ram Om Parkash v.  Excise and  Taxation  Officer,  Assessing  Authority,  Amritsar(3). Neither  of  these decisions would be of assistance  as  the question  which  was canvassed in Ghanshyam Das’s  case  (1) regarding  assessment  proceedings having  commenced  within time  and  then  remaining  pending  did  not  come  up  for consideration.  Since the said notice dated January 11, 1957 was served on the respondent firm before the expiry of three years from the respective dates for furnishing the  returns, the  assessment proceedings must be held to  have  commenced from that date which was within time and thus the assessment proceedings  remained pending until they were terminated  by the assessment order.  Though that order was finalised after the expiry of three years from the said period, it could not be attacked on the ground of its being beyond limitation and therefore  without  jurisdiction.  The order passed  by  the High  Court  allowing the respondent’s  writ  petition  has, therefore,  to  be set aside.  The appeal succeeds  and  the writ  petition  is dismissed.  In the circumstances  of  the case,  however,  we do not propose to pass any order  as  to costs. V.P.S.                            Appeal allowed. (1) [1964] 4 S. C. R. 436. (3) [1965] 16 P.L.R. 107. (2) [1963] P.L.R. 768. 19